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How to Read Stocks: Charts, Basics and What to Look For
Learning how to read stocks is like learning how to read – it is a crucial step in your investment journey and will help make investing make more sense. So, how do you actually read stocks?
- ANNE SRADERS
- MAY 8, 2019 12:59 PM EDT
iStock
If you’re just getting into investing, there are a few things you should understand at the outset.
While picking a brokerage and a of couple stocks to get started are key on your investment journey, understanding how to actually read a stock or stock chart is just as vital.
But, how do you read stocks? And what are some easy takeaways that can make investing more simple and less confusing?
How to Read Stocks
Reading stock charts, or stock quotes, is a crucial skill in being able to understand how a stock is performing, what is happening in the broader market and how that stock is projected to perform. Knowing the basics can help investors make better decisions and are a vital first step in getting into and understanding investing.
Stocks have quote pages or charts, which give both basic and more detailed information about the stock, its performance and the company on the whole. So, what makes up a stock chart?
What Is a Stock Chart?
A stock chart or table is a set of information on a particular company’s stock that generally shows information about price changes, current trading price, historical highs and lows, dividends, trading volume and other company financial information.
52-Week High and Low
The 52-week high and low are key metrics when looking at the trajectory of a stock in a given period (in this case, one year). The 52-week high and low show the highest and lowest prices at which the stock traded in that time period, although they don’t often show the previous day’s trading price.
Ticker Symbol
The ticker symbol is the symbol that is used on the stock exchange to delineate a given stock. For example, Apple’s ticker is (AAPL) – Get Apple Inc. Report on Nasdaq, while Snapchat’s ticker is (SNAP) – Get Snap, Inc. Class A Report on the New York Stock Exchange (NYSE). The ticker is usually found under a column titled “ticker,” or, in some cases, right next to the name of the stock in parentheses.
However, while some tickers look a lot like the company name – like Microsoft and MSFT – (MSFT) – Get Microsoft Corporation Report , not all companies’ tickers do, so be sure to make sure you are looking up the right company when searching for tickers.
Dividend per Share
Not all companies pay out dividends – which are essentially small payouts of company profits to shareholders. But for the ones that do, the dividend per share – or the annual dividend payment per share for investors – will be represented on the stock chart. https://8344e7043e3abdee28547814c631c886.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
Dividend Yield
The dividend yield, then, is the percentage return on that dividend, and is calculated by dividing the annual dividend by the current stock price.
P/E Ratio
The P/E ratio, or price-to-earnings ratio, is a key metric when looking at a stock chart. The P/E ratio is found by dividing the current stock price by the earnings per share for the past year (four quarters).
Day High and Low
The day high and low simply show the highest and lowest prices at which the stock traded throughout the day, from market open to market close. However, the day high and low may not be the open and close prices – those are separate figures.
Open Price
The open price is simply the price at which the stock opened trading on any given day.
Close Price
The close price is perhaps more significant than the open price for most stocks. The close is the price at which the stock stopped trading during normal trading hours (after-hours trading can impact the stock price as well). If a stock closes above the previous close, it is considered an upward movement for the stock (and will impact things like candlestick charts, which we’ll get to later). Vice versa, if a stock’s close price is below the previous day’s close, the stock is showing a downward movement. https://8344e7043e3abdee28547814c631c886.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
Prev. Close
The prev. close, or previous close, is the price at which the stock closed the previous day (24 hours before).
how to invest in stock market for beginners
How to Start Investing in Stocks: A Beginner’s Guide
By CHAD LANGAGER Updated February 06, 2022Reviewed by JULIUS MANSAFact checked by YARILET PEREZTable of Contents
- What Kind of Investor Are You?
- Online Brokers
- Robo-Advisors
- Investing Through Your Employer
- Minimums to Open an Account
- Commissions and Fees
- Mutual Fund Loads
- Diversify and Reduce Risks
- The Bottom Line
Investing is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labor in the future. Investing is a means to a happier ending. Legendary investor Warren Buffett defines investing as “the process of laying out money now in the expectation of receiving more money in the future.”1 The goal of investing is to put your money to work in one or more types of investment vehicles in the hopes of growing your money over time.
Let’s say that you have $1,000 set aside and are ready to enter the world of investing. Or maybe you only have an extra $10 a week and you’d like to get into investing. In this article, we’ll walk you through getting started as an investor and show you how to maximize your returns while minimizing your costs.https://76be830295cd05213e13fbc3a3c24934.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
KEY TAKEAWAYS
- Investing is defined as the act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.
- Unlike consuming, investing earmarks money for the future, hoping that it will grow over time.
- However, investing also comes with the risk of losses.
- Investing in the stock market is the most common way for beginners to gain investment experience.
Click Play to Learn How to Start Investing in Stocks
What Kind of Investor Are You?
Before you commit your money, you need to answer this question: What kind of investor am I? When opening a brokerage account, an online broker such as Charles Schwab or Fidelity will ask you about your investment goals and what level of risk you’re willing to take.
Some investors want to take an active hand in managing their money’s growth, while others prefer to “set it and forget it.” More traditional online brokers, like the two mentioned above, allow you to invest in stocks, bonds, exchange-traded funds (ETFs), index funds, and mutual funds.
Online Brokers
Brokers are either full-service or discount. Full-service brokers, as the name implies, give the full range of traditional brokerage services, including financial advice for retirement, healthcare, and everything related to money. They usually only deal with higher-net-worth clients and can charge substantial fees, including a percentage of your transactions, a percentage of your assets that they manage, and sometimes, a yearly membership fee. It’s common to see minimum account sizes of $25,000 and up at full-service brokerages. Still, traditional brokers justify their high fees by giving advice detailed to your needs.
Discount brokers used to be the exception but are now the norm. Discount online brokers give you tools to select and place your own transactions, and many of them also offer a set-it-and-forget-it robo-advisory service. As the space of financial services has progressed in the 21st century, online brokers have added more features, including educational materials on their sites and mobile apps.
In addition, although there are a number of discount brokers with no (or very low) minimum deposit restrictions, you may be faced with other restrictions, and certain fees are charged to accounts that don’t have a minimum deposit. This is something that an investor should take into account if they want to invest in stocks.
Robo-Advisors
After the 2008 financial crisis, a new breed of investment advisor was born: the roboadvisor. Jon Stein and Eli Broverman of Betterment are often credited as the first in the space.23 Their mission was to use technology to lower costs for investors and streamline investment advice.
Since Betterment launched, other robo-first companies have been founded, and even established online brokers like Charles Schwab have added robo-like advisory services. According to a report by Charles Schwab, 58% of Americans say they will use some sort of robo advice by 2025.4 If you want an algorithm to make investment decisions for you, including tax-loss harvesting and rebalancing, then a roboadvisor may be for you. Also, as the success of index investing has shown, you might do better with a roboadvisor if your goal is long-term wealth building.
Investing Through Your Employer
If you’re on a tight budget, try to invest just 1% of your salary into the retirement plan available to you at work. The truth is you probably won’t even miss a contribution that small.
Work-based retirement plans deduct your contributions from your paycheck before taxes are calculated, which will make the contribution even less painful. When you’re comfortable with a 1% contribution, maybe you can increase it as you get annual raises. You’re unlikely to miss the additional contributions. If you have a 401(k) retirement account at work, then you may be investing in your future already with allocations to mutual funds and even your own company’s stock.
Minimums to Open an Account
Many financial institutions have minimum deposit requirements. In other words, they won’t accept your account application unless you deposit a certain amount of money. Some firms won’t even allow you to open an account with a sum as small as $1,000.
It pays to shop around some and check out our broker reviews before deciding where you want to open an account. We list minimum deposits at the top of each review. Some firms do not require minimum deposits. Others may often reduce costs, such as trading fees and account management fees if you have a balance above a certain threshold. Still others may offer a certain number of commission-free trades for opening an account.
Commissions and Fees
As economists like to say, there ain’t no such thing as a free lunch. Though many brokers have been racing recently to lower or eliminate commissions on trades, and ETFs offer index investing to everyone who can trade with a bare-bones brokerage account, all brokers have to make money from their customers one way or another.
In most cases, your broker will charge a commission every time you trade stock, either through buying or selling. Trading fees range from the low end of $2 per trade but can be as high as $10 for some discount brokers. Some brokers charge no trade commissions at all, but they make up for it in other ways. There are no charitable organizations running brokerage services.
Depending on how often you trade, these fees can add up and affect your profitability. Investing in stocks can be very costly if you hop into and out of positions frequently, especially with a small amount of money available to invest.
Remember, a trade is an order to purchase or sell shares in one company. If you want to purchase five different stocks at the same time, this is seen as five separate trades, and you will be charged for each one.
Now, imagine that you decide to buy the stocks of those five companies with your $1,000. To do this, you will incur $50 in trading costs—assuming the fee is $10—which is equivalent to 5% of your $1,000. If you were to fully invest the $1,000, your account would be reduced to $950 after trading costs. This represents a 5% loss before your investments even have a chance to earn.
Should you sell these five stocks, you would once again incur the costs of the trades, which would be another $50. To make the round trip (buying and selling) on these five stocks would cost you $100, or 10% of your initial deposit amount of $1,000. If your investments do not earn enough to cover this, you have lost money just by entering and exiting positions.
If you plan to trade frequently, check out our list of brokers for cost-conscious traders.
Mutual Fund Loads
Besides the trading fee to purchase a mutual fund, there are other costs associated with this type of investment. Mutual funds are professionally managed pools of investor funds that invest in a focused manner, such as large-cap U.S. stocks.
An investor will incur many fees when investing in mutual funds. One of the most important fees to consider is the management expense ratio (MER), which is charged by the management team each year based on the number of assets in the fund. The MER ranges from 0.05% to 0.7% annually and varies depending on the type of fund. But the higher the MER, the more it affects the fund’s overall returns.
You may see a number of sales charges called loads when you buy mutual funds. Some are front-end loads, but you will also see no-load and back-end load funds. Be sure that you understand whether a fund that you are considering carries a sales load prior to buying it. Check out your broker’s list of no-load funds and no-transaction-fee funds if you want to avoid these extra charges.
For the beginning investor, mutual fund fees are actually an advantage compared to commissions on stocks. This is because the fees are the same regardless of the amount that you invest. Therefore, as long as you meet the minimum requirement to open an account, you can invest as little as $50 or $100 per month in a mutual fund. The term for this is called dollar-cost averaging (DCA), and it can be a great way to start investing.
Diversify and Reduce Risks
Diversification is considered to be the only free lunch in investing. In a nutshell, by investing in a range of assets, you reduce the risk of one investment’s performance severely hurting the return of your overall investment. You could think of it as financial jargon for “Don’t put all of your eggs in one basket.”
In terms of diversification, the greatest difficulty in doing this will come from investments in stocks. As mentioned earlier, the costs of investing in a large number of stocks could be detrimental to the portfolio. With a $1,000 deposit, it is nearly impossible to have a well-diversified portfolio, so be aware that you may need to invest in one or two companies (at the most) in the first place. This will increase your risk.
This is where the major benefit of mutual funds or ETFs comes into focus. Both types of securities tend to have a large number of stocks and other investments within their funds, which makes them more diversified than a single stock.
The Bottom Line
It is possible to invest if you are just starting out with a small amount of money. It’s more complicated than just selecting the right investment (a feat that is difficult enough in itself), and you have to be aware of the restrictions that you face as a new investor.
You’ll have to do your homework to find the minimum deposit requirements and then compare the commissions to those of other brokers. Chances are that you won’t be able to cost-effectively buy individual stocks and still diversify with a small amount of money. You will also need to choose the broker with which you would like to open an account.Compete Risk Free with $100,000 in Virtual CashPut your trading skills to the test with our FREE Stock Simulator. Compete with thousands of Investopedia traders and trade your way to the top! Submit trades in a virtual environment before you start risking your own money. Practice trading strategies so that when you’re ready to enter the real market, you’ve had the practice you need. Try our Stock Simulator today >>
